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Client List Value

Client List Value

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I don't know if this is the best place to post this on the site, but I have been offered an opportunity of a small client list (approx. 7k) that would be ideal for me to takeover.
 

However, he is asking for 'GRF' of 1.25, which seems to mean he wants 8.75k for the business.  I happen to think that is extortionate for an income stream that is in no way guaranteed.  Although he has offered the list to me in 2 halves to try and lessen the risk. 

He is in his early 70's and to say he's old school is a massive understatement.  So I would be keen to hear your thoughts as to what you would advise is the next step for me to go forward with?  And a typical accepted way to measure or pay such a transaction?
 

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By redman7
29th Jul 2013 12:01

re

I wouldn't say it is extortionate : 1 - 1.25 is fairly standard I believe

If I was in your position I'd be negotiating to 1 and also with 50% paid upfront, 50% deferred consideration to be paid after the first years billing

Has he spoken to his clients to see if they are happy to move over? You should see if you can meet some of them with him or at least have a chat...

Other points:

- this is a very small fee bank which makes valuation more difficult

- I personally would rather throw cash at a form marketing (e.g. telemarketing, mail outs, adwords)

 

 

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By Ozzi
29th Jul 2013 12:21

Thanks for your thoughts redman.

I thought a valuation closer to 1 would be more appropriate.  The guy has had these clients for over 15 years, so I am weary that a change could see them breakaway from me to a different advisor.

I am also conscious that I am 26 and he is much older than me.  Part of the problem I will face is that they will assume I am not old enough to advise their businesses; I have already encountered it with other businesses.  I hold an ACCA practicing certificate whereas he is not under any accounting membership.

I did think a counter offer could be that I work for the year for free and pay him all of the fees.  That way I know which clients will transfer over and he will still get the same sales price if he comes down to 1.

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By wilcoskip
29th Jul 2013 12:27

Cash-flow it

Given the age of the vendor and the low value of the entire fee list, any sort of upfront payment would make me very nervous.

One solution that's worked for me in the past is to link payment over 2 years to the cash income from the work.

For example, say one of the clients on the list is worth £500 (sale price by the vendor x1.25 = £625.  When I got the payment from that client in year 1, I'd pay over £312.50, and the same in the second year.  Third year, I then get to keep everything....

If he won't go for something like this then I'd walk away.  As redman 7 said, you might as well throw the money at some good marketing (£8k in telemarketing would go a long way if you worked with some decent people.)

WS.

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By Ozzi
29th Jul 2013 12:36

Thanks WS,

I am definitely not in the market to pay up front for them, especially considering I am about to buy my first property.  To spend money on a client list rather than a dining table would mean I wouldn't have a girlfriend to go home to!

I think that is a fair solution, that way I am benefiting immediately from the work whilst also paying a fair fee. I will put that to him and see what he says.

Regards,

O

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By pauld
29th Jul 2013 13:20

Due diligence

Have you a list of the recurring fees for each client? Have you taken a  look at some of the files? If they have been with him for 15 years, then sounds like an established client base. Could turn out to be a good investment, but I certainly would not do the work for a year free in that you might get it down to 1 GRF. This could be throwing away £7k income. It should, as suggested, be a staggered payment with say 1/2 up front and 1/2 after say 6 months, with a clawback for any lost or clients that ceased to trade or go elsewhere. I think you will still need his help over the first 6 months to liaise with clients and ensure a smooth transition. You could offer him say 0.9 GRF with an hourly rate for his help over the coming months. If you held onto the clients for say 5 years, that could be £35K extra income. Not a bad investment for a cost between 7 and 8.75K. The most important thing is to get as much info as you can about the clients before going ahead..

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By Ken Howard
29th Jul 2013 13:51

Look at the files

As Pauld has said, look at the files.  

A while ago, I was in negotiation with an unqualified accountant close by who, likewise, was retirement age and ready to sell up.  Everything looked fine, i.e. number of clients, GRF, client ages & types, cost and payment instalments, etc.

Final part of my due diligence was to look at some of his files.  Boy, am I glad I did.  I'd put aside a day to look through maybe a dozen files, but I'd left after an hour and called off the deal.

The files were horrendous.  It would have taken a few hours on each file to make them even remotely up to standard of being usable.  90% of the client information was in the guy's head, not in the files.  He'd done nothing about proof of ID, know your client, etc., so all that would need to be done as well.  But the worse thing was that it was clear he was grossly undercharging for the time he spent - he was doing full tradesman book-keeping, VAT, PAYE and annual accounts/tax for £100 - this was misrepresentation as he said he had lots of "small/simple" sole traders where he charged £100 - my interpretation of "small/simple" doesn't mean doing book-keeping, VAT and CIS for tradesmen!!

If I'd had admin/trainee staff, then I may have considered it as they could have done all the work, but being on my own, I'd have spent hours doing dogsbody work for poor return.  No thanks!

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By Ozzi
29th Jul 2013 14:20

Many thanks for your further responses.

I am conscious that the income could well be worth my while in the future, which is why I want to tread so carefully.

With it being such a new opportunity for me, it feels strange paying for something that I may not get.  Although I suppose the inclusion of a clawback clause would give me some confidence.

I really don't want my best option to be paying 1/2 up front with the costs I am currently having to deal with, so do you think it's a fair option for me to offer 50%-60% of the fee over the next 2 years in order to pay him?

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By Jason Dormer
29th Jul 2013 19:22

Ozzi

Tell your girlfriend that there is no point in having a dining table if you can't put any food on it!

Some good advice given above, and if you are at the early stage of growing a client base then this purchase may be worth looking at. If the accountant is old school as you say then you may be able to use technology and systems to greatly reduce production time resulting in greater profit - assuming that his fees are viable.  Have a look at his files as said above.

There may also be lots of potential for adiditional work that current accountant is missing.

The client list will also give you good experience in managing change and dealing with people, without too much of a financial risk, and give you extra scope for client referrals.

I would look at files, review profile, and if happy then offer 1 x turnover, with caveats - 50% now, 25% in 6 months and 25% in 12, depending on billing and cash received.  Taking into account the investment time and whether you have it to spare.

Jason Dormer

Seahorse (UK) Ltd - For Accountants and Bookkeepers

 

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